Friday, January 20, 2017

Get Rich. Save the World. Gut Fish

Venture capitalist Ross Baird, 32, has red hair and an open face that calls to mind Happy Days-era Ron Howard. He’s one of those preternaturally mature millennials who already has a developed philosophy, glossy academic credentials, and financial backing from important people for his fund, Village Capital. In high school at Phillips Exeter Academy, Mark Zuckerberg was the dormitory proctor who set up his e-mail. Plus, Baird wants to save the world while getting rich. All very Silicon Valley.

But the rule of Sand Hill Road (that’s shorthand for the Menlo Park, Calif., epicenter of tech VC) is to invest widely in nouvelle concepts, hoping that one will be at least a “ten-bagger” (posting a return 10 times the investment). Baird, however, typically invests in unsexy ideas that he hopes will be three-baggers, often in agriculture, energy, and health care. Venture capitalists fixated on finding the next Snapchat put 85 percent of their $50 billion in funding last year into states that voted for Hillary Clinton, most of it in California, Massachusetts, and New York. Meanwhile, for the past seven years, Baird has been doggedly finding and developing successful businesses in the downtrodden places whose economic distress ultimately helped elect Donald Trump. (...)

Baird is especially excited about Fin Gourmet Foods, a company in Paducah, Ky., that buys invasive Asian carp from local fishermen and turns it into boneless filets for gourmet restaurants and fish paste for Asian supermarkets. Asian carp is best known as the biggest threat to the ecosystem of the Great Lakes; the federal government just earmarked $42 million to combat the species. The youngest fish eat their body weight daily, outcompeting bass for plankton, leaving sport fishermen in fear of economic ruin. Asian carp grow into 70-pounders known to jump as high as 10 feet: There’s a wide selection of videos on YouTube of these leaping monsters terrifying—and occasionally injuring—boaters. And because the fish are full of bones that make them hard to eat without meticulous processing, they fetch a third the wholesale price of catfish.

Despite that, Fin Gourmet forecasts revenue will rise to more than $1.5 million this year from $320,000 in 2016. “They’re growing like crazy, the profit margins are good, and they’re taking something out of the environment that’s bad and turning it into something that people want to pay for,” Baird says. The couple who founded the company draw their workforce from the ranks of “people who need second chances from incarceration, drug courts, domestic violence,” according to the company’s website. One foundation dubbed Fin Gourmet “the future Zappos of fish processing” for its community-minded approach. Boneless filets from Asian carp have started appearing on menus in Louisville and Lexington, and even at the first farm-to-table restaurant in Paducah, where it’s branded Kentucky blue snapper and costs $21. Served with spiced yogurt, mint, or cilantro, the white fish looks and tastes like tilapia.

In December, after a warning from my wife to wear a life jacket, I set out for the waterways of Kentucky, deep in the red-state America that’s sparked no end of analysis—from best-selling memoirs such as J.D. Vance’s Hillbilly Elegy to Margaret Mead-style travelogues by coastal journalists like me—to see if it’s possible to create jobs in a place where the most plentiful resource is trash fish.

I accidentally drove past Fin Gourmet headquarters before circling back: It’s housed in a onetime barbecue joint across from an abandoned gas station. Workers in blue “American Carp” T-shirts—a joke naturalizing the foreign species—sliced fish at tables covered in guts and blood. “Seven to 9 a.m., we do bladders,” one said. Lula Luu and John Crilly, the energetic former academics who started the company, moved here from New Orleans because Paducah is near the confluence of the Ohio and Tennessee rivers, as well as Kentucky Lake, a vast reservoir created by a Tennessee Valley Authority dam, which are all rife with Asian carp.

Luu got a Ph.D. from the University of Kentucky in nutritional sciences, with a focus on health disparities in minority groups. Crilly, a former psychiatry professor at Tulane in New Orleans, has researched mental health and suicide in rural populations. In 2010 he and Luu started a New Orleans nonprofit job retraining agency. Among their clients were Vietnamese shrimpers looking for offseason fishing work. Crilly read an in-flight magazine article about some chefs’ efforts to beat back the Asian carp invasion by eating the fish, and wondered if they could be another source of income. One problem: A series of Y-shaped bones run through the filets. Crilly sliced thousands of fish himself before finding a way to remove them efficiently.

Luu and her mother had fled Vietnam in 1980. Growing up in Tennessee, Luu hated Vietnamese fish cakes, made from a paste known as surimi that’s a staple in many Asian dishes. Often loaded with MSG, the cakes upset her stomach. But when she made them from Asian carp, they were springy and fresh-tasting.

Carp became an obsession that she and Crilly juggled with their academic jobs. They sank $1.5 million in savings into a business they named Fin, for fish innovation. Skeptics told them you couldn’t make money from U.S. surimi. Chinese carp farms, which operate with little regulatory oversight and can dump wastewater straight into sewers, had the market cornered with cheap product. The shrimpers lost interest in carp after the Gulf oil spill when BP set up a compensation fund; they worried the paid work might cut into their relief income. The couple put 110,000 miles on their Toyota Camry in one year, searching for other regional fishermen and selling fish paste in Asian supermarkets and nail salons staffed with Vietnamese immigrants. They even got an audience with then-Secretary of Commerce Gary Locke, who promised to help if they prepared an “ironclad business plan.” (They completed one, but never got a call back.)

In 2014, Baird and Village Capital organized a three-month training program for agriculture startups in Louisville. Village Capital has made investments in more than 70 companies by putting entrepreneurs through these workshops, then having them rank one another in order to decide who gets funding. Luu and Crilly pitched their idea, and it was one of two winners. Baird put in $50,000, with a plan to get $150,000 back. (The deal gives him 5 percent of Fin Gourmet’s revenue until it reaches that target.) “If you walk into TechCrunch Disrupt,” says Baird, referring to the prominent conference, “Lula and John don’t look or talk like your average tech entrepreneur. But they’ve identified a very specific market and know what they’re doing,” he says.

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